Sex, Lies and Non-Disclosure Agreements/The Stormy Daniels Litigation
Updated: Mar 23, 2019
On October 28, 2016 a company called Essential Consultants, LLC, “David Denison”(DD) and “Peggy Peterson” (PP) entered into a Confidential Settlement Agreement and Mutual Release, Assignment of Copyright and Non-Disparagement Agreement. I’ve quoted the names because neither is an actual person. The first paragraph of the agreement states that both names are pseudonyms. As we all now know, “PP” is adult film “star” Stormy Daniels, and “DD” is a pseudonym for the 45th president of the United States.
The Agreement is 17 pages long, can be read in its entirety here. But here are the highlights:
The agreement states that Ms. Daniels received confidential information, including images, text messages and other information by Mr. Trump. Mr. Trump claimed that Ms. Daniels had harmed him by threatening to make the confidential information public.
Ms. Daniels was to be paid $130,000. In return, she was to (1) transfer to the other side all of the confidential information and rights to it, including copyrights (2) deliver to them all of the “artistic media”, impressions, paintings, video images, email/text/Instagram/Facebook messages between them (3) agree not to disclose any of the confidential information. Daniels provided a list of four people to whom she had already disclosed the “confidential information”.
It was agreed that Daniels COULD disclose the confidential information if subpoenaed or otherwise required to do so by a court.
Daniels agreed that, if an arbitrator found that she had breached the agreement, she would be liable to the other side for $1,000,000 for EACH such breach.
The parties agreed that any dispute between them would be resolved by arbitration. In other words, they gave up their right to go to court, and instead, agreed to be judged by a confidential arbitration proceeding. They also agreed that, if there was a dispute, EC and Mr. Trump could, in their sole discretion, choose whether the laws of California, Arizona or Nevada would be used to decide the case.
The Settlement Agreement was signed by Daniel’s lawyer, and also by Michael Cohen, as attorney for Essential Consultants, LLC. It was not signed by either Ms. Daniels or by DD/our President. The agreement contained an attachment stating the actual names of both of the pseudonyms, but those names were blacked in the copy of the attachment filed with the court. The attachment was also signed by the attorneys for Daniels and Essential Consultants, DD/Mr. Trump. But like the Agreement, it was not signed by Ms. Daniels, DD or Mr. Trump.
The big question raised by media commentators is whether the agreement is enforceable, given that “DD” didn’t sign it. That question is up in the air. Each state has different laws on this issue, and we don’t yet know whether California, Arizona or Nevada law will be used to decide the case. Ms. Daniels will argue that “DD’s” failure to sign it means the agreement is void. Mr. Trump’s “side” will argue that Daniels readily took the money and accepted the benefits of the contract, all of which means his lack of signature doesn’t matter. Each side’s argument has some merit, though the fact that she took the money will make it hard for her to sell a judge (or arbitrator) on the idea that the agreement is void.
As an aside, “DD” could simply sign the agreement now, and possibly cut off Ms. Daniel’s argument. But I am guessing that won’t happen.
So after the agreement was signed, rumors of the “DD/PP” relationship began to leak. Mr. Cohen, invoking the arbitration clause of the agreement, had an arbitrator appointed (without Ms. Daniel’s knowledge). The arbitrator apparently entered a restraining order (which I haven’t seen) that forbid Ms. Daniel’s from making any further disclosures. This is what White House spokesman Sarah Huckabee Sanders was referring to when she told reporters that an arbitration proceeding against Daniels “was won in the president’s favor.”
In response, on March 6th of this year, Stormy Daniels filed suit in California state court, against President Trump, DD and Essential Consultants, LLC. The Complaint alleges:
That Ms. Daniels decided to tell her “story” after seeing the now infamous Access Hollywood video, and that Mr. Cohen (who she describes as Mr. Trump’s “fixer”) prepared a “Hush Agreement” for her to sign.
That Essential Consultants was incorporated to hide the true source of the funds used to pay Ms. Daniels.
That Ms. Daniels was “intimidated and coerced’ into signing the agreement. That Mr. Cohen then began to give the press details of the agreement. This, Daniels claims, is evidence that no binding agreement was actually in place. In other words, she is making the (pretty good) argument that Cohen’s willingness to talk about it means that he too was disregarding its confidentiality terms.
The suit asks the California state court to declare that “Hush Agreement” was null and void and that Ms. Daniel’s was not required to comply with it.
Before the California state court could rule on the request, the lawyers for Essential Consultants, with the consent of President Trump filed papers which removed the case from the California state court to a United States (federal) court in Los Angeles. This is a very common tactic used by parties who are being sued, due to a belief that a federal court is more “defendant friendly” than a state court.
To remove a case, however, the defendant has to show that the amount at stake in the suit is greater than $75,000. Ms. Daniel’s state court lawsuit doesn’t request money. So to satisfy the dollar requirement EC’s lawyers claimed that Ms. Daniels could potentially be liable to them for as much as $20,000,000 (20 violations of the “Hush Agreement” and damages of $1,000,000 for each).
At this point Ms. Daniels may ask to have the case sent back to state court. If not, the federal court will have to decide whether it will take control over the case, or rule that the case has to be decided by the arbitrator. To do so, it will have to decide whether the “Hush Agreement”, and its arbitration clause is enforceable, given that DD did not sign it.
I don’t know what the law on this is in California, Nevada or Arizona. And whatever law is used, it will depend on the federal judge to apply it and decide. With apologies to all of the judges reading this, it could become more of a political decision.
If it were me, and setting aside politics, I would rule that Ms. Daniel’s has to comply with the very well drafted “Hush Agreement”.
We know Essential Consultants signed it, so I don’t see any reason why that company cannot not enforce it, though one perfectly legit question is “what in the hell is Essential Consultants, LLC”. And the followup question is whether a company can be set up for no other reason than to sign an agreement, and seek to enforce it, in order to the hide the identity of the real party, and setup a situation where the real party in interest doesn’t have to sign it. In other words, is the whole thing a sham on our system of justice?
But while it’s true “DD” didn’t sign it, and that Essential Consultants, LLC is probably a sham company, the fact remains that Ms. Daniels, up until very recently, had signed the agreement, accepted the money and accepted the benefits of the agreement. She has every right to challenge the agreement and to move forward with the interviews she has scheduled. But she faces major financial consequences if she does.
THE LAW OFFICE OF PHIL GRIFFIS